On August 10, 2016, In In re Walgreen Co. Stockholder Litig., the US Court of Appeals for the Seventh Circuit rejected a disclosure-only class action settlement where the supplemental disclosures did not address a plainly material misrepresentation or omission and the only apparent beneficiaries of the settlement were the recipients of the attorneys' fees, not the class members ( (7th Cir. Aug. 10, 2016)).

In 2012, Walgreens began the process of merging with Alliance Boots GmbH (Alliance). Walgreens first purchased a 45 percent stake in Alliance and obtained the right to purchase remaining equity beginning at a later date. In 2014, Walgreens moved forward with the second phase of the purchase, after which it would reorganize and become a wholly owned subsidiary of a new Delaware Corporation called Walgreens Boots Alliance, Inc.

Walgreens filed a proxy statement seeking shareholder approval of the reorganization. The shareholders then filed a class action, seeking additional, supplemental disclosures which, allegedly, would affect the shareholder vote. The parties agreed to settle. Under the settlement, Walgreens agreed to issue six additional disclosures, which made up one percent of the total disclosures related to the merger. The settlement also authorized class counsel to ask the judge to award them attorneys' fees.

After receiving the six supplemental disclosures, 97 percent of Walgreens' voting shareholders approved the merger. Despite being handicapped by lack of guidance for judging the significance of the disclosures, the district court approved the settlement, finding that the costs related to the settlement in the form of attorneys' fees to be nominal and the disclosures irrelevant to the shareholders and thus incapable of preventing the reorganization. A shareholder named Berlau, who objected unsuccessfully to the settlement in the district court, appealed the decision.

The Seventh Circuit reversed and rejected the settlement. The court adopted the standard that the Delaware Court of Chancery recently articulated in In re Trulia for approving disclosure-only settlements. Under this standard, disclosure-only settlements are disfavored unless:

(In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884, 894 (Del. Ch. 2016).)

The Seventh Circuit concluded that neither requirement was satisfied in this case. The court further noted how unusual this case was, given the absence of any indication that members of the class had an interest in challenging the reorganization; the only concrete interest suggested was the attorneys' fees.